Cash-for-Clunkers Could Drive New Sales
Thursday, March 19, 2009
To put a stop to sliding auto sales that were dragging down Germany's stalwart automakers, the German government offered drivers a few thousand dollars to scrap their old cars and buy new ones. In February, while auto sales fell throughout Europe, German auto sales jumped 21 percent.
Now the United States is contemplating whether such a tactic can work here, where sales have plummeted to the lowest levels in more than two decades.
Rep. Betty Sutton (D-Ohio) introduced a new spin on the concept on Tuesday in an effort to battle the steep decline in auto sales that's pushing car companies deeper into the red. Under her bill, the government would buy cars and trucks that are at least eight years old and send them to the scrap heap or to be recycled for parts and materials. The owners would receive vouchers worth $3,000 to $7,500 to buy more fuel-efficient North American vehicles or use mass transit.
New cars must meet a minimum of 27 miles per gallon on the highway and trucks must meet 24 mpg. The better the fuel efficiency, the bigger the payout. And the sticker price on the new car can be no more than $35,000.
To some, the program has the potential to help strapped automakers, tackle climate change and stimulate the economy -- all in one fell swoop. By encouraging people to ride mass transit and buy more efficient cars, it has the backing of environmentalists, public transit officials and economists.
But to others, the proposal violates trade agreements and threatens jobs by reducing vehicle repairs. The Automotive Aftermarket Industry Association argues that by taking cars off the road, the proposal would reduce the supply of used cars and effectively push up the price of those that remain.
Dubbed cash-for-clunkers, the program gained traction last fall as the U.S. economy slumped, auto sales began to plummet and Detroit's automakers fell into disrepair. But an earlier version failed in Congress as car collectors argued against destroying cars they rely on for parts and the United Auto Workers voiced concern that the proposal would finance purchases of foreign-made cars and trucks.
Sutton's bill, which has the support of Detroit's automakers and the UAW, attempts to subdue criticism by only subsidizing new vehicles made in North America, whether the company is based here or not. Car owners can fetch higher payments if they plan to buy a car made in the United States, rather than Canada or Mexico.
"It's fair to all major automakers, but gives incentives for the domestic production of vehicles that ensures jobs will be created in this country," said Alan Reuther, legislative director for the union.
Yet, it won't cover popular hybrid cars like Toyota's Prius, which is assembled in Japan, putting some dealers who sell imported international brands at a disadvantage. Barbara Nocera, Mazda's director of government and public affairs, charges that it violates several trade agreements.
"The 'Buy American' requirements of the Sutton Bill violate the WTO and NAFTA and discriminate against some of the most fuel-efficient vehicles sold in the U.S.," she said in a statement.
Aaron Lowe, vice president of government affairs for the aftermarket association, said people who own clunkers usually are not in the market to buy new cars. For instance, when Texas offered a similar incentive, about 60 percent of those who turned in old cars bought used vehicles.
"You can't offer someone that money and really expect they can afford something better they already have," he said. "At $3,000 or $4,000, what more can they buy?"
Critics argue there's no way of stopping people from turning in cars that they rarely drive. Through a California exchange program, drivers receive $1,000 to retire any car that's failed a smog check, even though it could have been sitting idle for years.
In February, monthly U.S. auto sales fell 41.4 percent compared with the same month a year ago. And March sales haven't shown any signs of improvement.
"Clearly there's urgency in passing this bill with auto sales in a slump," Sutton said.
Yet Michael Stanton, president of the Association of International Automobile Manufacturers, said the debate needs to continue a little bit longer.
"It would be nice get one of these bills through that's equitable on all sides," he said. "The industry could use some help."